CEO Offers Life Savings in a Bid for Leniency

Ivan Boesky paid $100 million for his crimes and Michael Milken shelled out more than $1 billion. So the $45 million put up Thursday by former WorldCom Inc. Chief Executive Bernard J. Ebbers is no barnburner, except for this: The deal would wipe him out.

Although Boesky and Milken still had fortunes in reserve after their celebrated payments, prosecutors say Ebbers has agreed to forfeit virtually all he has -- including his multimillion-dollar home, his rice farm and other enterprises.

By surrendering his fortune to settle civil claims, Ebbers hopes to get a lighter term when he appears in federal court for sentencing July 13, legal experts say. Prosecutors this week sought an 85-year term -- which would put Ebbers, 63, behind bars for the rest of his life for orchestrating an $11-billion accounting fraud at WorldCom.

“He’s not just throwing himself on the mercy of the court, he’s also throwing his wallet, his checkbook and his assets,” said Jacob Frenkel, a partner at Shulman Rogers Gandal Pordy & Ecker in Rockville, Md. “He’s saying, ‘If you want everything, take it, but don’t make me die in prison.’ ”

Depending on the ultimate value of Ebbers’ assets, his final settlement could yield as little as $30 million.

It’s common for convicted white-collar criminals to pay hefty financial settlements, attorneys say, but it’s rare to see one fork over his last dime. Milken and Boesky “were left with ample assets and every prospect of continuing their lives pretty much as before,” said George B. Newhouse Jr., a partner at Thelen Reid & Priest in Los Angeles. “Bernie is going to be quite a stark contrast.”

Ebbers’ attorney, Reid Weingarten, did not return a call seeking comment.

A federal jury convicted Ebbers on March 15 for his role in the WorldCom fraud.

Under the settlement negotiated by the U.S. attorney’s office in Manhattan, he would pay out $5 million immediately.

He would then transfer “substantially all” his other assets -- with an estimated value of $25 million to $40 million -- into a trust that would distribute the proceeds to shareholders and the company, according to the U.S. attorney’s office.

WorldCom shareholders who filed a class-action lawsuit against Ebbers would get 75% of the money. His former company, now known as MCI Inc., would get the rest.

“Mr. Ebbers was the person most responsible for the biggest corporate fraud in history, and it is appropriate that he surrender most of his personal wealth to the stockholders and bondholders he betrayed,” said Alan Hevesi, the New York state comptroller, who is the lead plaintiff in the class-action suit.

In previous settlements, Citigroup Inc., JPMorgan Chase & Co. and other investment banks that sold WorldCom bonds agreed to pay more than $6 billion to settle shareholder claims, and former WorldCom directors have agreed to pay about $25 million from their own pockets.

Under terms of the latest deal, Ebbers must sell his multimillion-dollar home in Clinton, Miss., and vacate the premises by Oct. 31. Ebbers also must fork over his financial interest in his various businesses -- lumber, trucking and grain-elevator companies, a golf course, a hotel and thousands of acres of timberland and other real estate.

Ebbers would retain enough money to pay his lawyers and to provide a “modest living allowance” for his wife. A spokeswoman for the U.S. attorney’s office said she did not know how much his wife would receive.

The settlement must still be approved by U.S. District Judge Denise Cote in New York, who is overseeing the class-action suit.

Milken, the junk bond king who pleaded guilty in 1990 to six felonies involving securities violations, was estimated to be worth several hundred million dollars even after paying about $1.1 billion in fines, restitution and lawsuit settlements. He served 22 months of a 10-year prison sentence.

Boesky was estimated to be worth $200 million at the time he paid a $100-million fine to settle insider-trading charges in 1986. He was sentenced to three years in prison and served two.

Outside experts were split on whether the deal would persuade U.S. District Judge Barbara Jones to give Ebbers a lighter prison term.

Because the government routinely goes after assets of convicted executives, lawyers said Ebbers knew he probably would have had to turn over much of his holdings.

And judges know that executives frequently cut deals before sentencing to make it appear they’re remorseful, said Roscoe C. Howard Jr., a partner at Sheppard, Mullin, Richter & Hampton in Washington.

“The harm’s been done and judges aren’t fools,” Howard said. “It’s like starting to go to church now.”

Newhouse said such deals, however, can elicit softer sentences.

“In my experience, it often has a dramatic impact,” Newhouse said. “He stands before the court humbled, penniless and prostrate.”

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Times researcher John L. Jackson contributed to this report.